Exam 7: Deductions and Losses: Certain Business Expenses and Losses

On February 20, 2018, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1, 2019, the stock became worthless.During 2019, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain.How should Bill treat these items on his 2019 tax return?

The cost of depreciable property is not a research and experimental expenditure.

Losses on rental property are classified as deductions for AGI.

Discuss the treatment of alimony paid and deductible individual retirement account contributions in computing an individual's net operating loss.

Currently, a net operating loss can be carried forward only (no carryback exists).

Susan reports the following items for 2019: ? Loss on rental property caused by termites-$110,000.Insurance covered 80% of the loss. ? Loss on personal use automobile-$10,000.The insurance policy does not cover the first $3,000 of loss.Susan decided not to file a claim for the loss. ? Loss on a painting stolen from Susan's house.She purchased the painting three years ago as an investment for which she paid $40,000.It was worth $35,000 at the time of the theft.The painting was insured for the fair market value. ? Salary-$40,000. Determine Susan's AGI and total amount of itemized deductions for 2019.

Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock.As a result, Al has a $40,000 ordinary loss.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

On July 20, 2018, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10, 2018, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15, 2019, Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2019 return?

The excess of nonbusiness capital gains over nonbusiness capital losses must be added to taxable income to compute an individual's net operating loss.

Several years ago, John purchased 2,000 shares of Red Corporation's § 1244 stock from Mark for $40,000.Last year, John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year, John sold the remaining Red Corporation stock for $3,000.John has a $17,000 ($3,000 - $20,000) ordinary loss for the current year.

Nora, single, reports the following income and deductions for 2019: \S1244 stock loss (18,000) Itemized deductions (4,000) Business capital loss (2,000) Business capital gain 1,000 Sales \ 50,000 Business expenses (100,000) Alimony received 30,000 Interest income 1,000 Dividends 2,000 Nonbusiness capital gains 4,000 \S1244 stock loss (18,000) Itemized deductions (4,000) Business capital loss (2,000) Business capital gain 1,000 Compute Nora's net operating loss for 2019.

Wu, who is single, reports the following items for 2019: Salary \ 25,000 Interest income 8,000 Itemized deductions ( \2 7,000 attributable to dedutible casualty loss) (32,000) What is Wu's net operating loss for 2019?

Three years ago, Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year, Sharon purchased a car from the same dealer, Hank's Auto.As partial payment for the car, the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car, the note had a balance of $18,000.During the current year, Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification, the note had a balance due of $15,500.What is the amount of loss with respect to the note that Hank's Auto may claim on the current year tax return?

Jose, single, reports the following items for 2019: Salary \ 44,000 \S1244 loss on stock acquired 3 years ago (70,000) \S1244 gain on stock acquired 10 months ago 26,000 Worthless security purchased in June of last year (4,000) Nonbusiness bad debt (7,000) Interest income 8,000 $\text { Compute Jose's adjusted gross income for } 2019 .$

Blue Corporation incurred the following expenses in connection with the development of a new product: Salaries \ 100,000 Utilities 18,000 Materials 25,000 Advertising 5,000 Market survey 3,000 Depreciation on machine 9,000 Blue expects to begin selling the product next year.If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value (FMV) but less than its adjusted basis, a gain is recognized.

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

A taxpayer can carry back any NOL incurred for two years and then forward up to 20 years.